Net Job Creation through June 2018

June’s net job creation of 213,000 as reported by the BLS on Friday was down by 31,000 from May’s increase. However, May was revised up by 21,000 and April was revised up by 16,000, so overall this was a good report.

Figure 1 shows the three-month moving average (3MMA) of the number of jobs created monthly since 2000 as the brown bars and the total number employed as the black line. These numbers are seasonally adjusted by the BLS, which has been criticized in the past for the ineffectiveness of its seasonal adjustment calculations.

To examine if any seasonality is left in the data after adjustment, we have developed Figure 2. In the eight years since and including 2011, May has on average had the lowest number of jobs created of any month of the year, which we attribute to poor seasonal adjustment. On average in those years, June has increased by 27 percent. This year was not typical because May increased and June decreased.  

In order to get a better look at whether the situation is improving or deteriorating, we developed Figure 3 for the first time in our May report. This shows the same total employment line as Figure 1, but includes the year-over-year growth on a percentage basis. From this we conclude there has been a small gradual improvement since September last year.

Total nonfarm payrolls are now 10,547,000 more than they were at the pre-recession high of February 2008. Total nonfarm employment in June was 148.912 million. According to BLS data, the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in June. In manufacturing, the workweek edged up by 0.1 hour to 40.9 hours,and overtime edged up by 0.1 hour to 3.5 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls remained at 33.8 hours. In June, average hourly earnings for all employees on private nonfarm payrolls rose by5 cents to $26.98. Over the year, average hourly earnings have increased by 72 cents, or 2.7 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $22.62 in June. The official unemployment rate, U3, reported in the BLS Household survey (see explanation below) came in at 4.0 percent, up from 3.8 percent in May, which was equal to the lowest value since our data stream began in January 2000 when the rate was also 3.8 percent. This is not a very representative number. The more comprehensive U6 unemployment rate declined from 9.2 percent in January last year to 7.6 percent in May before increasing to 7.8 percent in June (Figure 4). U6 includes individuals working part time who desire full-time work and those who want to work but are so discouraged they have stopped looking. The differential between these rates was usually less than 4 percent before the recession; in June it was 3.8 percent.

The labor force participation rate is calculated by dividing the number of people actively participating in the labor force by the total number of people eligible to participate. This measure was 62.9 percent in June and hasn’t changed much in over two years. Another gauge is the number employed as a percentage of the population, which we think is more definitive. In June, the employment-to-population ratio was 60.4 percent, up from 59.7 percent in June 2016. The employment-to-population ratio has made progress for the last four years, but the labor force participation rate has been stalled for two years. Figure 5 shows both measures on one graph.

In the 30 months since and including January 2016, there has been an increase of 5,828,000 full-time and a decrease of 350,000 part-time jobs. Figure 6 shows the rolling 12-month change in both part-time and full-time employment. This data comes from the household survey and part-time is defined as less than 35 hours per week. Because the full-time/part-time data comes from the household survey and the headline job creation number comes from the establishment survey, the two cannot be compared in any given month. To overcome the volatility in the part-time numbers, we must look at longer time periods than a month or even a quarter, which is why we look at a rolling 12 months for the full-time and part-time employment picture shown in Figure 6.

The job openings report known as JOLTS is reported on about the 10th of the month by the Federal Reserve and is over a month in arrears. Figure 7 shows the history of unfilled job openings through April when openings stood at 6,698,000, which was the highest in the history of our data. There has been an improving trend since mid-2009. This is how Federal Reserve Chairman Jerome Powell sees the situation: “For the first time since the Labor Department began collecting job openings (JOLTS) data in 2000, there are now more job vacancies than there are people counted as unemployed. In addition, the rate at which workers are quitting their jobs is elevated, a sign that workers are able to find another job when they seek one. And surveys show that businesses are finding it difficult to fill vacancies, and that households perceive jobs as plentiful.”

Initial claims for unemployment insurance, reported weekly by the Department of Labor, flattened in 2017 except for the hurricane-driven spike, then resumed their decline in 2018. New claims in the last three months were at the lowest level since 1969. In the week ending June 30, initial claims were 231,000 with a four-week moving average of 224,500 claims. This is a continuation of the longest streak since 1973 of initial claims below 300,000 (Figure 8).

SMU Comment: As 2018 unfolds, the employment situation is very good, job openings are at an all-time high, and new claims for unemployment are at a 44-year low. The employment situation has been described as “full” by some analysts. Unit labor costs were up in Q4 2017 and Q1 2018.

Explanation: On the first Friday of each month, the Bureau of Labor Statistics releases the employment data for the previous month. Data is available at www.bls.gov. The BLS reports on the results of two surveys. The Establishment survey reports the actual number employed by industry. The Household survey reports on the unemployment rate, participation rate, earnings, average workweek, the breakout into full-time and part-time workers and lots more details describing the age breakdown of the unemployed, reasons for and duration of unemployment.

At Steel Market Update, we track the job creation numbers by many different categories. The BLS database is a reality check for other economic data streams such as manufacturing and construction. We include the net job creation figures for those two sectors in our “Key Indicators” report. It is easy to drill down into the BLS database to obtain employment data for many subsectors of the economy. For example, among hundreds of sub-indexes are truck transportation, auto production and primary metals production. The important point about all these data streams is in which direction they are headed. Whenever possible, we try to track three separate data sources for a given steel-related sector of the economy. We believe this gives a reasonable picture of market direction. The BLS data is one of the most important sources of fine-grained economic data that we use in our analyses. The states also collect their own employment numbers independently of the BLS. The compiled state data compares well with the federal data. Every three months, SMU examines the state data and provides a regional report, which indicates strength or weakness on a geographic basis. Reports by individual state can be produced on request.